Yes, Millennials Actually Are Living in Their Parents' Basements

This isn't just another bogus trend—and these numbers prove it

July 9, 2014

Last week, The Atlantic’s Derek Thompson delivered a rebuke to writers who have expressed concern about elevated numbers of young adults living in their parents' basements. People like me, and also Derek Thompson from 2012.

According to Thompson, this increase relies almost entirely on a quirk in the statistical data. The Current Population Survey of the U.S. Census defines students living in dormitories as “living in their parents' home.” To Thompson, this means that the entire trend is bogus: More young adults are enrolling in college than ever before, and they’re simply counted as basement-dwellers. Prominent analysts like Calculated Risk’s Bill McBride picked up Thompson’s theory.

Is he right? Are perceptions of economic stresses among young adults, and their “Great Delay” of major purchases and life events, merely a function of increased access to college education? Do I owe readers an apology?

I don’t think so, for a variety of reasons. First of all, Thompson plays a bit with his age ranges. The statistics he pulls on the increase in college enrollment are for millennials aged 18-24. However, the trend of more young adults living at home, based on Current Population Survey statistics, extends from 18-34.

U.S. Census Bureau and Current Population Survey

Young Adults Living in Their Parents' Home, 1960-2012

You can see the upward trend for men and women aged 25-34 specifically. It’s hard to figure that this all comes from dorm living. Especially considering that college enrollment has actually fallen the past two years, yet young adults living at home continued to rise.

Next, we have to consider the type of college enrollment that has expanded, particularly since the recession. For example, has there been a massive increase in dormitory construction that we all missed to accommodate these new students?

It’s hard to pinpoint dorm spending from this graph, but it looks like education construction overall has fallen fairly sharply since 2008. This Wall Street Journal article about big real estate companies getting into off-campus housing may show increased demand, but of course that’s compared to an historically decrepit housing market. And it’s unclear whether off-campus housing counts as “dorm living” for the purposes of the Current Population Survey.

In fact, the largest increase in college enrollment in recent years comes from for-profit colleges, which tripled their numbers from 2001 to 2010, compared to a 31 percent increase for other types of higher ed. For-profit colleges typically don’t have dorms; for-profit online universities don’t even have campuses. So it’s extremely likely that those college students do live at home. In fact, the Census Bureau’s American Community Survey summary data finds that 41 percent of all students in college or graduate school live with their parents, nearly three times the rate of those living in student housing (14 percent).

Put this all together, and you get the result that economist Jed Kolko of housing analysis site Trulia finds: even after you adjust for increased college enrollment, “millennials were more likely to live with parents in 2012 and 2013 than at any other time for which a consistent data series is available.” Even eliminating all full-time college students aged 18-24 from the data shows the trend.

Trulia

Share of 18-24 Year Olds Living with Their Parents, 1986-2013

And when you exclude dorm-dwellers, you find that the share of 18-34 year-olds living with their parents has risen from 24 percent in 2000 to over 32 percent in 2012.

Trulia

Share of 18-34 Year Olds Living with Parents (Excluding Dorm-Dwellers)

During the same time period, the best estimate of college students living in dorms rose only slightly, from 7.6 percent in 2000 to 8.2 percent in 2012.

Trulia

Share of 18-24 Year Olds Estimated to be Living in College Dorms

Based on this data, the phenomenon of young adults bunking with Mom and Dad does not solely spring from increased educational enrollment. It’s more likely that they simply don’t have enough money. In a follow-up post, Derek Thompson actually acknowledges this, pointing out that young people have grown poorer in the last decade, with lower median incomes, higher unemployment, and more student debt. This leads to lower household formation, with millennial heads of household at lower levels in 2013 even than in the lowest point of the Great Recession in 2009, and homeownership for Americans under 35 at the smallest percentage on record.

That was the main point of my previous New Republic story: Low household formation hobbles an economy, leading to reduced home construction and fewer purchases of household furnishings. And increased educational enrollment, while a positive long-term trend, actually is an indicator of this, not a reason to dismiss it. The terrible job market almost certainly pushed young adults to get more skills rather than struggle to find work. At the basest level, it’s easier for a millennial to get a student loan than a personal loan. So off to college they went, living on debt and hiding out from the Great Recession. The inverse relationship between college enrollment and labor force participation speaks to this.

Calculated Risk Blog

Percentage of 18 and 19 Year Olds in School vs. in the Workforce ("Participation Rate")

In theory, this should pan out in the long run, given the wage premium for college graduates. But in practice, it may result in a glut of over-educated young people without jobs to support their skills. Paul Krugman wrote in 2011 that college degrees may not rebuild the middle class, but simply serve as “tickets to jobs that don’t exist.” That’s especially true of the growth industry in for-profit colleges, whose degrees are dubious, to put it mildly. Indeed, half a million young people with college degrees worked for the minimum wage last year, and low-wage jobs have seen the most growth in the economy.

As the labor market recovers, will this problem vanish? Will millennials earn more, move out and form households? Many analysts seem to think so, including Trulia’s Jed Kolko. He says that “young adults now appear to be starting to move out of their parents’ homes and forming new households as renters,” citing increased rental demand and apartment construction.

When I wrote about this problem in February, the numbers were not yet clear: different Census surveys showed different trends for millennial household formation. And it will take years to get back to the annual rate of 1.2 million new households (the past few years have been stuck around 600,000-800,000). But it could be that the combination of higher student debt, a lack of good-paying jobs and stagnant wages has created a new normal, where young adults simply expect to live at home for several extra years before venturing out on their own. None of the economic implications of that outcome would be good for the country. The housing market, consumer spending and even gross national happiness (unless you think most 30 year-olds like living with their parents) would suffer.

Whether or not you consider the Great Delay tragic depends on how you believe it will all shake out. I’m open to believing that strong growth will paper over many of these concerns. But if the way we finance higher education and the hollowing out of middle-skill jobs has permanently prevented the normal economic life cycle, dismissing the warning signs risks the life prospects of an entire generation.